Your P & L statement is a useful tool, giving you a snapshot of how you're doing for a specific period of time. However, you can increase the value of the statement as an analytical tool by comparing it to your budget, your past performance and other drivers at your carrier, or in the industry.
Your budget was created as a way to set expectations about what you hoped to accomplish in your business. As you receive your monthly P & L statements, you should compare your actual numbers to your budget to see if you are meeting your goals and expectations.
Is your revenue lower than you had hoped? Is there a particular expense that is higher than it should be? Once you identify a problem, area ask yourself why the number is what it is. You can then focus on ways to adjust what you're doing to correct the problem area.
Your profit and loss statements show you one month at a time and should also give you your year-to-date performance. Valuable information can be gained by comparing your results month to month and eventually year to year.
By comparing your results month to month, you can better understand how certain actions affect your business results. If revenue was high one month but not the next, analyze what you did differently or what circumstance caused the drop in revenue. This will give you knowledge to adjust your actions going forward. Are certain costs higher in one month than another? By applying the same analysis you can determine what happened to cause the higher costs and find ways to keep those costs down.
Comparing year over year will help you see if your business is growing and becoming more profitable. It will also help you recognize and track trends such as freight cycles. Understanding where those slow times are for your operation will assist you in making better business decisions about saving for slower months or when to take time off.
Another area of useful comparisons is to analyze how you are doing in relation to other owner-operators. This is called formal benchmarking and is the key to understanding the bigger picture, not just how you are doing within your own business. You will need to work with someone who has data available on thousands of owner-operators and can provide benchmarking of your P & L statement for you on a line item basis.
Industry comparisons should be used as a guide to point out areas where you want to focus attention in your business. They can also help you understand changes that are going on in the industry and what other drivers are doing to adapt. If you are not doing as well as other drivers in the industry, this is your opportunity to solve the problem and make more money. It is up to you.
Next time we'll talk about ways to control costs.